Should telcos abandon the BOP market?

Posted on February 3, 2009 / 5 Comments

bda-study

An article published by the Business Standard, India, states that telecom operators should focus on their most profitable customers, those at the top of the pyramid or TOP, instead of following bottom of the pyramid (BOP)-focused strategies. The article cites a study by BDA, a consulting firm in India, which finds that the TOP contributes a greater percentage to revenue than their lower-income counterparts.

An interesting debate has ensued, here and here, on the economics of serving the BOP. Although such figures appear to economically justify abandoning BOP-focused telecom strategies, some argue that there seems to be more to the picture than first meets the eye.

Rob Katz of Nextbillion.net argues that while the BOP might not be higher-end consumers just yet, they very well could represent the future middle class, and hence, bringing customers into the fold now, could make more sense than ignoring them altogether.

Furthermore, Rohan Samarajiva argues that a new set of business models to serving the BOP market is emerging which rests less on ARPU than on maximizing revenue-yielding minutes. Such models have enabled operators to achieve falling unit costs and hence higher mobile use, more so than might have been achieved with models serving the TOP.

More on the TOP vs. BOP discussion is available here.

5 Comments

Chanuka Wattegama
February 3, 2009, 12:07 pm
Right now, all telcos are forced to limit their infrastructure developments. That is for sure. So it is too much to expect them expanding coverage at least for this year. Perhaps they may be more comfortable providing value added services to existing subscribers – largely urban and largely TOP, who can still afford. Can’t blame.

On the other hand, difficult times always make revenue more important than profits. So we may still see some interesting developments. I remember in the post-9/11 times one air line offered Colombo-Bangkok air ticket for USD 90, which is usually more than thrice of that. Quality might suffer – but not the end of the world.

Bottom line: Universal service might be a longer dream, but urban BPO will still earn some benefits.
Ranga
February 3, 2009, 12:49 pm
The underlying assumption in the argument is that telcos only seek revenue.
It’s a rational argument with the recession and all, but an interesting point to ponder is what a maslow’s hierarchy for a multi-million dollar business would look like?
Rohan Samarajiva
February 3, 2009, 2:18 pm
Investment can be affected. Sure. But the budget telecom network model is not really about investment, but about packing as much revenue-yielding minutes as possible on to the existing network. This is what the airline offering a USD 90 ticket was doing; the plane is flying anyway, so carrying an extra passenger for anything above incremental cost is a plus.

If the network exists in rural areas (as is the case in BD and LK, and to a lesser extent in IN and PK), the BOP will still be served. The only group likely to get hammered are the people in areas where there is no signal.

Maslow. Why would a corporation be like a human? Does it need love? Praise?

Even if Maslow is correct for people (lots of qualifiers here), it should not be extended to non-natural persons like corporations. They should remain profit maximizers.
Ranga
February 3, 2009, 11:49 pm
For the time being, let’s assume that corporations should only concentrate on tangible profits. But what about the people running it? The stakeholders and investors? Are they not human?

Recently we had an event where the keynote speaker was Mahesh Amalean. He talked about how his company was not using child or forced labour, and general misconception towards garment workers. One might argue that he was trying to boost the company image and thereby generate more profit, but to me the talk seemed to have a little more actualization in it than one would bargain for.

The reason why computer science graduates choose Google over Microsoft, even when Microsoft salaries are way higher, again is that at Google there’s a sense of “changing the world”.

Why do companies like GM insist on “greening” the whole supply chain, rather than just being satisfied with an ISO 18000 for their factories? Why do companies like Toyota conduct expensive and tedious Life Cycle Analysis on their products?

I’m just saying that you’re over-simplifying the equation of telcos and BOP. There’s a tangible profit at the BOP, however small it may be, which can keep the accountants happy. But the real driving force at the BOP is the intangible profits the companies will yield.
Rohan Samarajiva
February 4, 2009, 11:00 am
You seem to be reinforcing my argument. By effectively projecting a “changing the world” image (that costs x dollars), Google is able to pay its recruits y dollars less. If y is greater than x, the former expense contributed to the bottomline.